In relation to bribery of domestic officials in China, Articles 389 to 391 of the Criminal Law prohibit a person from making an offer of property to a person classified as state personnel or to a worker in a public entity in return for an improper benefit.
"State personnel" includes, for example:
Officials who perform public services in state offices (such as governmental authorities).
- People who perform public services in SOEs, public institutions (such as hospitals), or civil organisations (such as an industry association affiliated with a government agency).
- People who perform public services under the law (such as political representatives).
"Public institutions" include state-owned hospitals, medical clinics, research institutes, associations under the Ministry of Health (for example, the Chinese Preventive Medicine Association and the Chinese Medical Association), public schools, and so on.
Article 392 of the Criminal Law also prohibits brokering and arranging payments of bribes to domestic officials.
Article 385 of the Criminal Law prohibits domestic officials from accepting bribes. Specifically, a state official is prohibited from using his or her position to solicit or unlawfully accept a payment (including property, kickbacks or procedural fees), in exchange for giving improper benefits to another person. This offence also applies to bribes which are solicited or accepted through intermediaries.
Depending on the circumstances of the case, the penalties for bribing domestic public officials can be even more severe than those for bribing foreign public officials. Individual offenders (both those providing and those receiving bribes) can be fined, or subject to shortterm criminal detention or imprisonment, or to long-term (and even life) imprisonment, and to confiscation of property. Domestic officials who accept bribes may even be subject to the death penalty where the amount of the bribe is large enough and the surrounding circumstances are deemed sufficiently serious. Corporations found guilty of bribing domestic officials can be fined, while the key management personnel and the individuals who directly engaged in the illegal conduct can be subject to criminal detention or imprisonment.
Each part of the UK (England and Wales, Northern Ireland and Scotland) has its own local investigation and prosecution agencies that are able to deal with cases of bribery and corruption. These include the:
- Local police forces.
- Crown Prosecution Service in England and Wales.
- Public Prosecution Service in Northern Ireland.
- Crown Office and Procurator Fiscal Service in Scotland.
However, the lead agency for investigating and dealing with serious bribery and corruption cases, especially those involving corporate offences, is the Serious Fraud Office (SFO), which has jurisdiction to investigate and prosecute in England, Wales and Northern Ireland.
The SFO has a dual role in that it investigates (with or without police assistance) and prosecutes both serious fraud and bribery (domestic and overseas). It has a wide range of statutory investigation powers, which include search and seizure, compulsory document production notices, interviews under caution (with a right to silence), and compulsion interviews (with no right to silence). The SFO also plays a lead role in intelligence gathering and providing mutual legal assistance to overseas enforcement authorities.
In the US, the Department of Justice (DOJ) and SEC are both empowered to enforce the FCPA. The DOJ is responsible for civil and criminal enforcement of the anti-bribery provisions as well as the books and records and internal control provisions of the FCPA. It has broader jurisdiction than the SEC, and can investigate and bring charges against a broader class of potential defendants. The SEC is only empowered to bring civil charges against issuers of securities and their employees.
In Australia, investigations into suspected bribery of Commonwealth or foreign public officials are conducted by the Australian Federal Police (AFP), while prosecutions are handled by the Commonwealth Director of Public Prosecutions (CDPP). The Australian Securities and Investments Commission (ASIC) is also empowered to conduct investigations and to bring civil and criminal proceedings in respect of suspected breaches of the Corporations Act 2001, including conduct that involves suspected fraud or dishonesty.
In China, the Anti-Bribery and Embezzlement section of the People's Procuratorate Office (Procuratorate) (the public prosecutors' office) is responsible for co-ordinating and participating in investigations of criminal matters involving state personnel, including cases involving alleged bribery, embezzlement, misappropriation of public funds, concealing funds deposited overseas, and so on. The Procuratorate is also responsible for conducting prosecutions. The highest level of the Procuratorate is the Supreme People's Procuratorate headquartered in Beijing, which usually handles crimes allegedly involving very senior government officials (such as mayors, governors or Communist Party of China (CPC) secretaries at the provincial level). The local Procuratorate handles matters involving lower level officials.
The Central Committee for Discipline Inspection (CCDI) is the discipline supervision organisation established within the CPC, and is responsible for investigation of alleged bribery and embezzlement involving all levels of CPC members. It is essentially the CPC's anti-corruption watchdog and, accordingly, its focus is on CPC officials rather than commercial organisations.
For foreign bribery offences, it is likely that the Public Security Bureau and the Ministry of Public Security (the Chinese police force) will be involved in investigations, while the Procuratorate will conduct prosecutions. However, it is uncertain which other enforcement agencies may be involved, since there have not yet been any published cases of investigations or prosecutions under Article 164 of the Criminal Law.
VOLUNTARY DISCLOSURE OF CORRUPT CONDUCT
Is there a general duty to disclose?
There is no general legal duty to disclose or report known or suspected corrupt activity to law enforcement bodies in the UK, US, Australia or China. However, companies and directors may have duties imposed on them to disclose corrupt activities to auditors, shareholders or regulators by particular local legislation or regulations. For example, in the UK under the Companies Act 2006 (in respect of accounting/ audit matters) or the Financial Services and Markets Act 2000 (in respect of financial services firms' specific duties to report to their regulator), and in Australia under the Corporations Act 2001.
In addition, there are two principal circumstances in which disclosure of suspected corrupt activity may be legally required in the US:
- Where a company is already under a corporate integrity agreement, deferred prosecution agreement, or a government procurement contract that requires disclosure.
- Where a failure to report could result in a books-and-records violation of the FCPA.
Corporate self-reporting in bribery and corruption matters to prosecutors, with a view to leniency, plea negotiation or civil settlement is a relatively recent development in the UK, as well as in Australia. There is no general basis for self-reporting or for plea or settlement negotiations under UK or Australian legislation. However, over the last four years the UK's SFO has acknowledged that encouraging self-reporting leads to a less resource-intensive and speedier method of resolving complex bribery and corruption cases.
Is there guidance for self-reporting?
UK. There are two pieces of guidance which have shaped the SFO's current approach to self-reporting:
- The Attorney General's Guidelines on Plea Discussions in Cases of Serious or Complex Fraud (fraud meaning any financial, fiscal or commercial misconduct or corruption).
- The Approach of the Serious Fraud Office to Dealing with Overseas Corruption. As part of the incentive for self-reporting, the SFO states its intention to use civil penalties such as Civil Recovery Orders wherever possible instead of criminal sanctions.
The SFO has already had some notable successes from its new approach, resulting in civil recovery and criminal convictions. However, it has not been plain sailing, with the business community and the judiciary being critical of the self-reporting process. From the corporate point of view, the process is fraught with uncertainty. If there is a civil outcome, the parties can negotiate and agree a settlement on their own terms. However, if there is a guilty plea to a criminal charge the outcome is entirely in the hands of a judge and there are, as yet, no firm guidelines on sentencing. From the judges' point of view, plea agreements have been seen as an attempt to curtail their sentencing powers.
US. US enforcement authorities have expressed a preference for self-disclosure and have indicated that more lenient treatment can be forthcoming in considering whether to bring charges, and in the consequences if charges are brought. The DOJ's Principles of Federal Prosecution of Business Organizations states that one of the factors a prosecutor should consider in deciding whether to bring criminal charges against a company is the value of the co-operation, the timely and voluntary disclosure of wrongdoing and co-operation with the government's investigation.
In addition, the US Sentencing Guidelines provide that voluntary disclosure will reduce a company's culpability score in the calculation of a fine. Statistically, there appears to be a reduction in fines or other advantages as a result of voluntary disclosure, but nonetheless there remains great debate as to the advantages of voluntary disclosure in the US.
Australia. In Australia, the CDPP conducts prosecutions in accordance with the Prosecution Policy of the Commonwealth: Guidelines for the making of decisions in the prosecution process (Prosecution Policy). The Prosecution Policy does not address the issue of voluntary disclosure or co-operation except in relation to accomplices (who may receive reduced sentences or other concessions in exchange for co-operation in the prosecution of another perpetrator). However, the Crimes Act 1914 (Cth) provides that when determining the appropriate sentence in a particular matter, a Court must take into account a number of factors including "the degree to which the person has co-operated with law enforcement agencies in the investigation of the offence or of other offences" (section 16A(2)). In that sense, voluntary disclosure and co-operation may assist companies in mitigating their potential liability for suspected bribery or corruption.
For offences with a fault element (either intention, knowledge or recklessness), the relevant fault element will be attributed to a body corporate that expressly, tacitly or impliedly authorised or permitted the commission of the offence in question (section 12, Criminal Code). This may involve proving that the board of directors or senior management actually carried out or authorised the illegal conduct, or that a corporate culture existed that directed, encouraged, tolerated or led to the criminal conduct. A failure to make a voluntary disclosure of suspected bribery or corruption to Australian law enforcement authorities may see corporations fall foul of this provision, with the result that corporate criminal responsibility will be attributed to them.
There is also a possibility that:
- Individuals and corporations who do not report suspected corrupt activity may be charged with accessorial or conspiracy offences.
- Directors may be in breach of their directors' duties under the Corporations Act.
- The corporation may fail to meet its continuous disclosure obligations.
China. Under Article 164 of the Criminal Law, express provision is made for reduction or exemption of the applicable sanction in the event that a person voluntarily discloses conduct that may constitute bribery of a foreign public official. However, given that this is a new offence and that there have not yet been any publicised prosecutions, whether and to what extent law enforcement authorities will adopt a lenient approach to those making voluntary disclosures is not known.
More generally, voluntary disclosure of potentially criminal conduct, and co-operation with relevant law enforcement authorities, are factors that may mitigate potential liability for alleged violations of domestic bribery laws as well. If the value of a given bribe is relatively small and the adverse consequences of the bribe are limited, the Procuratorate may decide not to prosecute the individual or the company at all.
What are the implications of voluntary disclosure for a company?
Voluntary disclosure has serious implications for a company. On one hand, individuals and companies may receive more lenient treatment from law enforcement authorities. On the other hand, they could be revealing conduct that might otherwise have escaped the notice of enforcement authorities and which may be subject to very serious penalties. There is no easy answer to this dilemma. The facts and circumstances in each case will need to be considered in consultation with experienced legal counsel. Certainly in Australia, the UK, and China, the absence of a formal legal process to govern self-reporting means that companies are beginning to understand the value of an early internal preliminary independent investigation conducted by specialist external lawyers, who can advise whether self-reporting is required, or is advisable, in all the circumstances.
What protections can a company put in place when considering disclosure?
The appointment of external lawyers is increasingly important in protecting the product of the investigation with legal professional privilege, which is not generally available in respect of the advice received from accountants or in-house counsel. In Australia and the UK, legal advice privilege attaches to all communications between the client and its external lawyers, and to any document produced by the lawyers to assist the client in the investigation, which would cover any notes and the final advisory report prepared by those lawyers. In the US, attorney client privilege applies to communications the purpose of which is to secure an opinion on the law, legal services, or assistance in some legal proceeding. Maintenance of privilege can be invaluable in protecting information against compulsory disclosure to regulators and prosecutors should there be a decision not to self-report. It is important to be aware that there is no concept of privilege under Chinese law.
In internal investigations, it is important to structure the investigation team to ensure that, as far as possible, privilege will be protected. For example, care should be taken to ensure that any third parties hired to assist in the internal investigation who are not lawyers (such as accounting and audit firms) are engaged by legal counsel to protect privilege to the maximum extent possible. Ideally, the entire investigation team will act under the auspices of the legal team.
If a self-report is made, the presence of external lawyers can lend an air of independence and credibility to the investigation, which may ultimately dissuade the relevant regulator from launching a formal investigation, conducting raids or issuing document production orders, all of which can be damaging and disruptive to the company and its reputation.
The initial approach to the enforcement body is often made by external lawyers on behalf of a company, although a company (or an individual) may approach the enforcement body directly. The external lawyers will then take instructions from the company and liaise with the enforcement body.
In the UK, it is becoming increasingly common for the SFO to ask companies that self-report to instruct external lawyers to undertake a detailed internal investigation of the issues that the SFO considers to be most relevant. The aim is to present a report to the SFO on the extent of the corrupt activities, the financial benefit to the company and the remedial action taken or proposed, so that it can decide what enforcement action, if any, is appropriate. Regardless of the existence of legal professional privilege, the SFO generally has an expectation of full and frank disclosure before it is willing to consider plea negotiation or civil settlement as an alternative to prosecution.
It is expected that proposed new legislation in respect of deferred prosecution agreements, which is to be introduced in the UK during 2012/2013, will bring more transparency and certainty for corporates who wish to self-report, take remedial action and wipe the slate clean.
In the US, if a company decides to make a voluntary disclosure, it is generally considered wise to disclose simultaneously to the relevant law enforcement authorities, although a company could also disclose a potential or actual violation as part of an SEC filing.
It is becoming increasingly important for companies to thoroughly understand, and to develop strategies to ensure compliance with, anti-bribery and anti-corruption laws in force around the world. For companies operating on the world stage, it is not sufficient simply to consider the law in force in the jurisdiction in which the company is headquartered. Legislation such as the Bribery Act has broad extra-territorial reach and can capture conduct engaged in outside the UK by non-UK persons. Accordingly, companies are increasingly adopting policies and operating procedures which mandate conduct of the highest standards, to ensure compliance with their most stringent legal obligations.
Despite best efforts, some companies will inevitably find themselves facing potential corruption concerns. In those circumstances, it will be important to seek legal advice as early as possible so that an internal investigation can be conducted (while protecting privilege as far as possible) and an informed decision can be made about whether (and how) to make a voluntary disclosure to the relevant law enforcement authorities. It is a difficult balancing act and the appropriate course of action will vary from case to case.
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